Editor’s note: On Monday, President Obama signed into law the Bipartisan Budget Act of 2015. Among its provisions are changes that shut down two popular Social Security claiming tactics: the-file-and-suspend and the restricted-application strategies. This column explains the changes to the Social Security laws and provides questions from readers and answers from experts.
If you’re married…
The impact on planning for couples is nuanced, according to Joe Elsasser, founder of Social Security Timing. There are now three sets of rules:
1. For people born on or before May 1, 1950
People born on or before May 1, 1950 (those who turn 66 for Social Security purposes in April 2016) have access to voluntary suspension that allows auxiliary beneficiaries (the spouse of a retired worker and the children of a retired worker) to claim as long as the request for voluntary suspension occurs on or before April 30, 2016, and can file a restricted application at any time between ages 66 and 70.
Restricted application: With a restricted application, an individual who was eligible for both a spousal benefit based on the work record of a spouse and a retirement benefit based on his or her own work could choose to take only a spousal benefit at full retirement age. This allowed his or her own benefits to accumulate 8%-a-year delayed retirement credits, and then they could switch to their own larger benefits at any point in the future up to and including age 70. The new law phases out this option.
Voluntary suspension: Under the existing (old) law, the higher wage earner in a couple could file for Social Security benefits and then immediately request those benefits be suspended. The checks to the higher wage earner would stop, which allowed for their benefits to grow 8% a year. While the benefit was suspended, the lower wage earner spouse could collect a spousal benefit. Under the new law, only people who suspended their benefits in the past or within the first 180 days after enactment of the new bill will be covered under the old rules, and they will continue to fall under the old rules until they reach age 70 or un-suspend their benefits.
2. For people born on or after May 2, 1950, but before Jan. 2, 1954
People born on or after May 2, 1950 but before Jan. 2, 1954 can still do a restricted application under the new law. However, voluntary suspension will also suspend the benefits of other auxiliary beneficiaries, including spouses and children, and under this change to the law, the spouse benefiting cannot receive spousal excess while a voluntary suspension is in effect. (The spousal excess is the difference between one half of the higher wage earner’s full retirement benefit and the lower wage earner’s spouse’s full retirement benefit.)
3. For people born on or after Jan. 2, 1954
For these people: Under the new law, voluntary suspension suspends the benefits of the spouse and children, and the lower wage earner cannot receive spousal excess. There is also no option for a restricted application.
Questions and answers
Question: At 66 years of age, my full retirement age (FRA), I filed for Social security benefits and immediately suspended. My wife, also 66 (her FRA), filed for spousal benefits only on my account. We initiated this in August, 2014 and have received spousal benefits each month since September, 2014. Now, I am at a complete loss on what to do next because of the new law. We are both working full time and our intent is to maximize our Social Security benefits and start taking it at 70. How do we do this under the new law? —Howard
Answer: You will squeak under the wire for the effective dates of the new Social Security rules, according to Andy Landis, founder of Thinking Retirement, author of Social Security, The Inside Story and a MarketWatch RetireMentor.
The file-and-suspend changes will affect only new requests to suspend, starting six months from bill being signed into law, so there’s no problem with your already-requested suspension, Landis said. And the changes to spousal benefits affect only people born Jan. 2, 1954 and later, so your wife’s benefits also will not change.
“In essence, you don’t have to do anything; it looks like you and your wife fall safely under the old rules,” Landis said. “Just to be sure, give the Social Security Administration a few months to issue instructions to their employees and check with them.”
Question: I read that the new budget law will eliminate file-and-suspend, but it will not affect couples who are over 62 in 2015. I am 65 and my wife 63 in 2015. I was going to suspend my benefits and take spousal benefits in 2018 when wife is at FRA. Is this strategy still available? —Steve
Answer: It will depend on your birthday, Steve. You have only 180 days from the signing of the bill to file and suspend and you need to be 66 to do this, according to Larry Kotlikoff, co-author of Get What’s Yours — the Secrets to Maxing Out Your Social Security Benefits.
“So if you are within 180 days of your birthday, you’re OK,” he said. “Otherwise, no.”
You can use software created by Kotlikoff to confirm your best move. Maximize My Social Security, which costs $40, will be updated to reflect changes in the Social Security law by Nov. 20.
If you’re divorced…
The impact for divorced people is very similar to that for those who are married, according to Elsasser. The important timelines are for those born before Jan. 2, 1954 who still have access to the restricted application and those born after, who do not.
Question: I will be 66 in October 2016. I have been divorced more than 10 years and never remarried. I was thinking about filing on my ex-spouse’s Social Security record, receive half her benefit, and suspend mine until I am older. In your column, (Read: Millions of Americans just lost a key Social Security strategy) Mike Piper is quoted as saying “But for people who will be 62 or older at the end of 2015, the restricted-application strategy is still available.” That sounds like I might still be able to draw on my ex-spouse’s Social Security record next year and receive half her benefit and let mine grow. Then further down the story it said:
- You will no longer be able to receive benefits on anybody else’s work record while your benefits are suspended.
- Nobody else will be able to receive benefits on your work record while your benefits are suspended.
Does that still mean I am out of luck or that I cannot draw on her Social Security record if she suspends? —Jon
Answer: Jon will be able to file a restricted application at his full retirement age to receive just spousal benefits on his ex-spouse’s work record while allowing his own retirement benefit to grow, said Piper, author of Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less.
Of note, Jon should not file and suspend his own retirement benefits, Piper said. “The whole point of filing a restricted application is to collect something while not filing for one’s own retirement benefit,” he said. “However, Jon is right that if his ex-spouse suspends her benefit for some reason (after the closing of the 180-day window), his benefit as an ex-spouse would be cut off while her benefit is suspended.”
But fortunately for Jon, Piper noted, the reasons for suspending are significantly reduced as a result of the new rules, so it’s somewhat unlikely that she would suspend her own benefit.
If you are a widow or widower…
Planning for widows and widowers was not affected at all, according to Elsasser. Widows and widowers will continue to have the opportunity to restrict an application to only widow benefits or only retirement benefits, and later switch to the other benefit.
Question: I will be 64 at the end of 2015. I am not retired yet, but I planned on claiming my ex-husband’s Social Security when I do retire (probably when I’m around 66 years-old) and letting my Social Security benefits grow until I’m 70. Is that no longer a possibility with the new law?
Answer: You can let your benefits grow, Kotlikoff said.
If you are single…
The impact on planning for singles is very simple, said Elsasser.
If you were born on or before May 1, 1950 and the optimal strategy for you would be to delay benefits past your full retirement age, you should file and suspend as soon as you are eligible to do so — either immediately or as soon as you reach FRA. The last date to be able to do so will be April 30, 2016.
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